Shift Technologies Revs Up Online Car Marketplace With $50 Million Round From Goldman

Shift Technologies lists, stores and sells a customer's car for them. In July, it was the second-largest used car dealership in San Francisco. (Photo courtesy of Shift Technologies)

In recent years, companies have emerged to let you rent your apartment, find a taxi or order dinner with the click of a button. As the on-demand economy evolves, Shift Technologies is hoping that consumers will be comfortable with buying and selling cars over the web with similar ease.

On Tuesday, San Francisco-based Shift, one of a handful of startups hoping to make the process of buying and selling used cars easier by using online technology, announced it had raised $50 million in a round led by Goldman Sachs Investment Partners. The company declined to disclose a valuation for the investment, but noted that it had raised nearly $75 million since its launch less than two years ago.

"They are the primary financial institution in the world," said Shift cofounder and CEO George Arison of Goldman, which took a board seat in the deal. "The big reason [we chose them] was because we wanted someone who understood marketplaces and financial services."

Shift's fundraising comes after various competitors, which also have car selling web and mobile applications, have increased their cash piles and presences in the market. In May, Los Altos, Calif. company Beepi said it was finalizing a round of funding that it said would be more than $300 million, while Vroom, a New York startup, raised $54 million in debt and equity in June.

While all the companies promise the same vision of higher earnings for sellers and cheaper prices for buyers by eliminating the costs that come with running brick and mortar car dealerships, there are slight differences. Both Beepi and Vroom take possession and title of a vehicle before selling and shipping them to eventual buyers. Neither offers test drives, and each hopes that a buyer trusts what they read and see online before making their purchase.

Arison, a former
Google product manager, doesn't consider those companies as direct competitors because they've taken the used car lot approach and ported it online. Shift, on the other hand, offers a different model where it inspects and tunes up automobiles before taking those vehicles on consignment and listing them on its site and other marketplaces for sale. The company sets a base minimum amount that a seller would receive for selling a car, with any proceeds raised over this amount split 50-50 between Shift and the auto owner. (On average, the company said a seller makes about $1,500 more than a comparable dealer trade-in.) Shift also offers test drives and has its so-called "car enthusiasts" drive vehicles on-demand to potential buyers within 45 minutes.

"We're trying to disrupt the Craigslist experience," said Arison, referring to the large amount of transactions facilitated by the largely unregulated peer-to-peer selling site. "These purchases already happen, but we want to bring in trust and give you confidence when you're buying."

Arison estimated that his company's opportunity is the $750 billion a year (revenue) used automobile sales market, with $250 billion of that coming through private party transactions. While the company said it will be operational in 20 cities by the end of 2016, Shift is currently running in Los Angeles and the Bay Area. Based on available DMV statistics, the company was the second-largest seller of used cars in San Francisco in July, facilitating the transaction of 152 vehicles. Arison declined to disclose revenue figures.

Currently the company breaks even on the sale of every car, said Arison, who said his startup's goal isn't to make money off of marketplace transactions. Instead, he envisioned a world where Shift worked to provide various services to car owners whether that's changing their oil or brokering auto loans.

Those developments, however, may be months away for Shift and Arison, a serial entrepreneur who emigrated to the U.S. from the Soviet Union in the 1990s to attend high school. A former political consultant in his home nation of Georgia, he also cofounded Taxi Magic (now known as "Curb"), an Uber precursor that worked with cab companies to coordinate rides through mobile phones. Arison said he was ahead of his time when it came to developing his ride-sharing app and noted that he made plenty of mistakes, including the rejection of a term sheet from eventual Uber investor Bill Gurley.

"Online dealerships remind me of the Taxi Magic approach," said Arison, before noting that his current crop of competitors have models that are easy to copy. "I learned a lot from my previous experiences and have admired with Lyft, Uber and Airbnb have built with the marketplace model."

DCM and previous investors DFJ Venture and Highland Capital joined Goldman Sachs in the $50 million round.

Update on Sept. 1, 2015 at 1:30 p.m.: An earlier version of this post said that Shift Technologies would be in 20 markets by the end of this year. The company said it will hit that number by the end of 2016.